Most people want to save, but it can be difficult to get started, especially when you're living paycheck-to-paycheck. Sometimes, all it takes is a little incentive.
That's the idea behind what's called "prized-linked savings," a concept developed and nurtured by the non-profit Doorways to Dreams (D2D) Fund in Massachusetts. With programs such as Save to Win and SaveYourRefund, savers can win prizes as an incentive to encourage them to build their financial security.
"We need to think differently about saving, so that it's not just drudgery and denial, but something that people can get excited about," said D2D's executive director Timothy Flacke. "We want to make savings much more interesting, engaging and fun."
The national savings rate, which has actually gone up a bit lately, is still a dismal 5.5 percent, according to the U.S. Bureau of Economic Analysis.
A recent report from Bankrate.com found that a quarter of all adults in this country lack any financial cushion to deal with unplanned expenses, and 62 percent don't have enough set aside to handle an unexpected $500 car repair bill or a $1,000 emergency room visit.
"Without emergency savings, you are one unplanned expense away from resorting to high-cost credit," said Greg McBride, Bankrate's chief financial analyst.
Sharon Jones, a single mother of two in Austin, Texas, still can't believe she won the $25,000 grand prize in the 2014 SaveYourRefund contest. And all she had to do to enter was to deposit some of her federal tax refund into savings.
"I didn't think I had a chance to win, but I figured why not?" she told NBC News. "I am still shocked to this day."
Jones calls the money "a real blessing" that made it possible for her to buy some much-needed furniture for her Habitat for Humanity house. It will also pay for her daughter's tuition at Texas State and her own tuition at the University of Texas, where she is studying to become a math teacher.
A deposit is your ticket to play
SaveYourRefund is open to any taxpayer expecting a federal tax refund. To enter you must fill out an IRS form that splits your tax return, sending at least $50 of it to one of several approved savings products, such as Savings Bonds or CDs.
There are $100 weekly drawings and a $25,000 grand prize. The program is being promoted by more than 100 community-based tax preparation sites. The money for these cash prizes comes from philanthropic grants to D2D.
This is the second year Southern Chautauqua Federal Credit Union in western New York is taking part in the SaveYourRefund contest. CEO John Felton says the program helps paycheck-to-paycheck families turn their tax refund into a true asset.
"It's an incredible opportunity for people to recognize the importance of savings and the joy of savings, and possibly be rewarded with free money - and who doesn't like free money?" Felton said.
Save to Win is a separate program, not linked to tax refunds, currently offered by participating credit unions in four states: Michigan, Nebraska, North Carolina and Washington. To enter, contestants must deposit at least $25 into a 12-month share certificate. Every $25 dollar deposit earns another entry into the drawings for prizes of up to $10,000.
Herman Nelson of Belfair, Wash. won $25 in the Save to Win contest run by Peninsula Credit Union.
"It was fun," he said. "And even at $25, it was more than the interest I would have gotten from that account in a year."
Peninsula is one of six credit unions in Washington that offer Save to Win. CEO Jim Morrell says since the program started about a year ago, it has attracted 291 accounts worth more $514,000.
"It's been really successfully and we've heard a lot of positive stories about how it's motivating people to do the right thing - save money," Morrell said. The average amount saved per account is $1,768.
With these savings-related contests, players get all the fun of a state lottery without losing any money. Even if you don't win the prize, you still keep your deposits - plus interest.
Growing in popularity
Prize-linked savings programs have been popular in other countries for decades. Doorways to Dreams figured they could work here, too. A test in Michigan in 2009 proved successful at attracting people who hadn't saved before.
Six years later, more than 50,000 people are now taking part in Save to Win contests at more than 60 credit unions in four states. Lawmakers in eight other states have approved the use of savings-related lotteries.
Figures provided by D2D Fund show that:
- Between 62 and 81 percent of the account holders entering the contests are financially vulnerable
- About 80 percent roll over their accounts year after year
- Total savings since 2009 tops $94 million
- More than $227,000 was awarded in prize money in 2013
Bruce McClary, a vice president at the National Foundation for Credit Counseling, supports the idea of rewarding people for saving.
"While the lure of a cash prize is nice, the real victory is the creation and growth of a savings account that can be used for emergencies or bring important financial goals within reach," McClary said. "Save to Win offers incentives that motivate, giving participants a better chance of maintaining their savings habit long after they enroll."
Congress recently made it easier for more financial institutions to offer savings sweepstakes. The American Savings Promotion Act, a bipartisan bill introduced by Rep. Derek Kilmer (D-Wash.) and Rep. Tom Cotton (R-Ark.) was signed into law by the President Obama in December. The new law removes regulatory roadblocks that prevented banks and federally chartered financial institutions from offering prize-linked savings accounts. Now, if a state approves these programs, these banks can take part.
"This will enable people to be more self-sufficient without creating a new government program," Rep. Kilmer told NBC News. "It simply allows private industry to offer an innovative financial product."